Monday, August 07, 2017

I'M USUALLY A PESSIMIST, BUT I THINK TRUMP WILL SIGN A DEBT-CEILING INCREASE

Edward Kleinbard, writing in The New York Times, informs us that we're doomed:

Sometime in October, the United States is likely to default on its obligation to pay its bills as they come due, having failed to raise the federal debt ceiling. This will cost the Treasury tens of billions of dollars every year for decades to come in higher interest charges and probably trigger a severe recession....

This country has hit the debt ceiling once, in 1979, and then largely by accident and only to a minor extent. But even that foot fault was estimated to cost the United States about 0.6 percent in higher interest costs for an indefinite period. More recently, congressional debt ceiling brinkmanship in 2011 led Standard & Poor’s to downgrade the credit rating of the United States.

An increase in Treasury interest rates of just 0.2 percent a year would cost the government about $400 billion over the next 10 years. It also would lead to higher borrowing costs for American businesses, because borrowing rates are set by reference to Treasury rates. Moreover, each month holders of tens of billions of dollars in valid claims against the United States would go unpaid, triggering a major recession.

One reason Kleinbard is predicting this dire outcome is that Mick Mulvaney, director of the Office of Management and Budget, said in his days as a House member that he doesn't think a failure to raise the debt ceiling would really have dire consequences. This has put him at odds with treasury secretary Steven Mnuchin, who's been in favor of a "clean" debt-ceiling hike (i.e., with no adjustments in spending or other policy matters).

We were told last week that Mulvaney now agrees on a clean debt-ceiling hike. But if that's true, the hike still has to get through Congress -- House Freedom Caucus members tend to take the same hard-line position on the debt that Mulvaney (who founded the caucus) took until recently.

Democratic votes will probably be needed to get any debt-increase bill through Congress. Assuming that happens, will Trump sign the bill?

It's very possible ... that Mulvaney will continue to lobby internally for spending cuts and other policy changes to be added. Combined with what could easily be White Houses desperation for a big legislative win and the president's already notorious tendency to make a decision based on the last person he talks to, this could easily lead to Trump vetoing the clean debt ceiling Congress passes.

And if Trump does veto the bill?

Try to imagine the following without losing your lunch. Congress passes a clean debt ceiling that the president vetoes.... Congress then somehow overrides the veto. The Treasury has a new, higher debt ceiling to work with and the government once again may borrow to meet its financial obligations. For one brief moment, the skies seem bluer and the sun seems to be shining brighter.

Except enacting a debt ceiling increase isn't really the end of the process: the government still actually has to borrow the funds.

As far as I can tell, that borrowing isn't automatic. What if, in an extreme fit of pique over having the first veto of his administration overridden by a GOP-controlled Congress, Trump orders Treasury not to borrow even though the enacted debt ceiling increase gives it the legal authority to do so?

[Trump] has made decisions about legal matters or major policy decisions while consulting with some aides — only to reverse them after talking to family members or friends, who he dials late at night....

Kelly and senior West Wing officials don’t believe Trump will fully change.... they expect him to keep dialing old friends in New York after hours....

A lot of Trump's late-night phone friends are corporate moguls -- guys who aren't exactly liberals, but who also aren't politicized far-right zealots. They don't want a recession, and they absolutely don't want interest-rate hikes that will raise the cost of their own corporate borrowing. They'll urge him to sign the bill -- and he'll listen to them.

He'll do it for the CEOs. He may be a somewhat different kind of Republican on a handful of issues, but on this, he's old school.